ISLAMABAD: The Finance Ministry has disclosed that 0.5 percent (50 basis points) increase in interest rate contributes Rs300 billion to domestic debt, whereas, members of the Senate Finance Committee termed the high policy rate as propelling the businesses to the verge of collapse, let alone growth.

After a meeting of the Senate Standing Committee on Finance was informed by the Finance Ministry, the chairman of the committee inquired from the official that “You mean one percent increase in policy rate contributes to Rs600 billion to the domestic debt”, affirmative was the response of the official.

The committee members one after another deplored the impact of interest rate on businesses, whereas, Deputy Governor State Bank of Pakistan (SBP) Dr Inayat Hussain said that interest rate is the only tool available to the regulator to control inflation.

SBP keeps key policy rate unchanged at 22%

Senator Zeeshan Khanzada said that the unreasonable increase in interest has made it difficult for businesses to sustain, let alone grow.

Senator Kamil Ali Agha wanted to know from the SBP the difference between the prices of food items when the interest rate was around seven percent and now at 22 percent.

Agha regretted that factories have closed owing to high and unsustainable interest rate.

Saleem Mandviwalla said that banks non-performing loans (NPL) would increase because of high interest rate and wondered whether in developing countries such as Pakistan interest rate is an effective tool to arrest inflation.

Deputy Governor SBP Dr Inayat Hussain apprised that the interest rate has been increased to control the rising inflation and it has bear significant result in the past few months. Upon this, the Chairman of the Committee questioned how the interest could be effective in Pakistan which is having a very large size of the informal economy and sought a detailed report from the SBP in this regard.

The committee was briefed on difficulties confronted by politically exposed persons (PEP) in availing the financial services.

The deputy governor SBP stated that the system is in place, wherein, a focal person has been deputed in every branch to sort such issues and assured the committee that the SBP would instruct the bank again to open the account without any delay.

However, he stated that the system has failed to provide desirable results due to unknown reasons. The committee recommended to sensitise all banks to make functional the dedicated PEP officers in all commercial banks, designated on the direction of this committee earlier.

Moreover, the Senate body discussed the causes of the reported low scores of Pakistan’s banks in terms of their human rights policies.

Representatives from Fair Finance Pakistan emphasized that Fair Finance is committed to ensuring that financial institutions in Pakistan prioritise the social and environmental welfare of local communities.

They highlighted the need for Pakistan to embrace a Green Banking policy that incorporates environmental and social concerns into financial operations.

The deputy governor of the SBP mentioned that the SBP is making efforts to align with international standards, aiming to improve the well-being of individuals.

Copyright Business Recorder, 2023